Article 'Squeezed' Many Myths Within CUs
I had to take this opportunity to thank you for publishing Jim Jerving's article "The Big Margin SQUEEZE" that attacks and debunks some of the myths in credit union-land. The sentence, "a select few (of CU managers) still consider profits as anathema to the philosophy of a financial cooperative" rings true for our industry. It's sometimes hard to understand how these CUs manage to keep their membership and remain a viable market player, but I tend to agree with some forecasters that see the credit union industry shrinking in the next five to ten years. I see these types of institutions as being the ones that have to take advantage of merger opportunities.
With the margin pressures we've been experiencing, we've all had to look for more creative ways to make a buck and one of the first areas scrutinized was fee income. Tradition (and myth) had it that we weren't allowed to fee our members because then we were behaving like a bank (gasp!) but reality has shown that members actually appreciate some services enough to pay for them. Another myth is that credit unions always have better pricing than banks. Your article points out that this isn't the case and has actually flip-flopped to where CUs pay less than banks. And the last big myth discussed in the article concerns capital levels. We don't need 11% capital; instead many of us have chosen to keep these levels artificially inflated to the detriment of our membership. Consider the statistic that is quoted in the article-there is $32 BILLION of excess capital sitting out there!
As has been noted, CU products have become a commodity. This means that we have to be that much smarter and work that much harder to find members, give good service to keep them and still make some money. From your article and the people that were quoted, it is obvious that the credit union industry is loaded with talent that can lead us through these economic times and spearhead new changes such as getting CURIA passed (which is desperately needed). I appreciate the fact that CU Journal is looking squarely at these issues and giving us lots of food for thought.
Peg Lamb, CFO
Capital Community CU, Lansing, Mich.
Why Earnings At CUs Are Really Eroding
The Credit Union Journal article, "The Big Margin Squeeze and What it Means" (CU Journal, July 10), documents the critical nature by which consumers (shopping for the best deal) and regulation have seriously impacted CU earnings. Nice job by The Credit Union Journal. A couple of add-ons of interest follow:
First, often we hear folks blame the yield curve and the economic cycle for the earnings erosion. This earnings erosion trend has occurred for too long (since at least the early 90s) to give this thought much credence. More important, is the ability of competition to generate increased earnings, in the same yield curve and economic cycle (see chart, below).
Banks are pulling away from CUs on net interest margin during this flat curve environment while increasing what they pay out on deposits.
Industry "experts" will say that CUs can manage thin margins and get by on a lower ROA because "our capital level allows it." Here's the problem with that thinking. As CU competition generates more earnings while offering increased value on product and building capital, CUs become more vulnerable in a way that culture and member focus can't overcome. This could be why deposit growth at banks was 9% last year, while CU share growth was 3.8%. We must find ways to deal with this.
To say that "managing" to a .5 ROA opens up possibilities for the membership because of the increased value a CU can offer, is missing the point. The .5 ROA is a result of already giving the best a CU can.
When the competition (in large part due to regulation) makes more profit and can utilize capital more effectively for increased earnings and growth, all that is left is for them to be shrewd in HOW they use the increased earnings.
Based on all the marketing by banks I'm seeing as I travel around the country visiting CUs, the competition is getting shrewder, not less so.
Peter Duffy
Sandler O'Neill Partners, New York
Top To Bottom, DE Program A Great Experience
Someone asked me once to describe the DE experience to them. I told them it was impossible, they had to experience it for themselves! For the uninitiated DE stands for Development Educator, a title that is both honorable and humbling.
I have just graduated from the Class of 2006 as a CUDE, I am already a DUDE (a Down Under Development Educator) and was awarded a scholarship to attend the CUDE course held at the University of Wisconsin in Madison. What an experience!
First of all, I have never been to the U.S. before, and although I have made many friends through the Internet here (modern-day version of pen friends), coming to a strange country (yes we think you are strange) on my own, flying for about 21 hours, with four stops along the way, seemed like sheer madness, but such is the passion I have for DE!
Back home, I am on the board of directors of Maroondah Credit Union in Ringwood, Victoria, Australia. A small community credit union in comparison to most of your credit unions here ((A)$100M in assets), we have five branches and are located in the eastern/southern suburbs of Melbourne.
So why would a director want to become a DE? Ask any director you know that is one! They will tell you without a doubt that working alongside others who are passionate and dedicated to the credit union movement is nothing short of inspirational. There are so many talented people within our industry who are prepared to look outside the bounds of their own credit unions.
I became a DE in 2002 and have been fortunate to have mentored our DE program in Australia and each time I do it, whether as a participant or mentor, my personal growth and dedication to the industry grows substantially. If you haven't already done it-have a go, I can promise you it is an experience you will never forget!
After completing the course, I now have friends all over the U.S. and my next trip will have to be a lot longer because I think I have to visit nearly every state to catch up with the DE friends I have made. A couple in particular will stay very close to my heart and I'm sure we will have regular contact for a long time to come.
When I left Wisconsin, I had a couple of days in Chicago before coming to stay with another DE, Bob Scott (Pentagon Federal CU), who I met when he came on exchange to Australia. (Maryland/DC League CEO) Mike Beall was also a participant when I did my training in 2002, these two people in particular I am very proud to call my friends!
So to all of you involved in the credit union movement, this Aussie thanks you for taking her into your movement, your credit unions, your homes and your hearts-I will never forget you nor my experience in the CUDE program!!!
Robyn O'Connell, DUDE/CUDE
Maroondah Credit Union, Victoria, Australia
What Really Must Be Done To Tame IT Beast
I recently read how two CEOs tamed the IT beast in the June 26 issue of The Credit Union Journal. For about 16 years I have been doing business systems analysis and LAN/WAN implementation. Like hundreds of thousands of other IT professionals, I have a theoretical background via a BS in information systems, but I have also spent years traveling across the states and abroad consulting and providing systems analysis to dozens of different industries. I have learned from some of the best in the industry.
Working for the largest credit union in Hawaii, I have been quite surprised by the lack of mature IT approaches in credit unions. In your article, Jim Blake equates IT as not that different from asset-liability management, and specifically (he states) that "there is no specific management approach that applies to technology." These statements are not only incorrect and misleading, they are dangerous, and this attitude and immature approach to IT by credit union executives is the single leading reason we still lag so far behind in technical realms.
Of course there are management philosophy, approaches and skills that apply solely and directly to IT. Hundreds of educational institutions already offer advanced degrees in this type of work, and the Department of Defense and a few universities have been developing the field of IT management since the late 50s.
Today buzzwords that CEOs might recognize, such as "Change Management," and many foundations of Quality Assurance theory were founded in IT management theory. I have written articles outlining how Jim Nolan's Automatic Data Processing Stages of Acceptance, as published in Harvard's Business Review in the 1980s, gave birth to the now popular Change Management Models like ADKAR and others that are so reverently referred to by top managers in many different industries today.
Education to this fact is a key factor to growth in credit unions' approach to IT. Believe me, credit unions don't know how much they don't know, especially in the realms of security and analysis. Regarding security, there are specific approaches to security fathered by the DOD's site-security handbook and many more recent developments that are completely ignored, via ignorance. Regarding analysis and design, there is no knowledge base of IT -specific development theory like SDLC, RAD, and GRAD, and most importantly, Requirements Studies in Credit Unions. There is no talk of system analysis, just purchase the latest security appliance that has the pretty blinking lights and say you have tamed the beast.
I know many CU execs won't know for sure what I am talking about, but that is my point. IT management has its own domain, lingo, theory and knowledge base. Hire someone who knows what they are talking about, has experience and the knowledge, then let them do their job. That is how you tame the IT beast.
Eric A. Thompson, IT Project Coordinator
Hawaii State FCU, Honolulu Hawaii
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